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The semis (SMH) are surging, up 3.2% Wednesday and 25% year to date. Micron is leading the way -- it jumped 13% yesterday after beating quarterly estimates and forecasting a recovery in chip demand by the second half of the year. The company reported adjusted earnings of $1.05 per share and revenue of $4.79 billion, well above analysts' estimates of 79 cents and $4.69 billion. Micron posted its best day since December 2016, despite being stuck in the middle of the U.S.-China trade dispute and the restrictions on Huawei, one of its big customers.
Citing the bottoming EPS and stabilized book value, Needham upgraded Micron to buy with a target price of $50. The ripple effect reached adjacent players such as Western Digital, which Craig-Hallum Capital upgraded to buy, specifically citing Micron's performance.
Yet despite the upswing, Micron remains 36% off its 52-week high. So the "Halftime Report" traders were more skeptical on Wednesday's show, wondering if the company's numbers and the U.S.-China landscape really support the optimism.
Steve Weiss of Short Hills Capital Partners shorted Micron stock on Wednesday morning "hoping people would come to their senses and say the quarter wasn't that good." Though that didn't happen and he covered his position at a loss, he remained bearish because of the details in the earnings report: "You've had an inventory build from 130 days to 150 days. That's not good. I also believe you've had some stuffing of the channel, not in a nefarious way, but by the buyers in China buying in advance" because of the trade uncertainty. Thus, "We don't know what real demand will be there and what additional inventories will be there."
Pete Najarian, co-founder of Investitute.com, did not short but was ready to sell his stock soon. "I'll probably be out [of Micron] by the end of the day," he said on Wednesday's "Halftime Report," "because this is a great move, and I think it's a nice violent move to the upside. But I'm not so sure that guidance [from Micron's earnings report] really has me enough excited right now to say, you know what, I see this [surge] persisting for a long period of time."
Jon Najarian, co-founder of Najarian Family Office, is also getting out. He sold his Micron calls, saying, "It was a lovely winner, God bless them, I'm taking the money and running." For the same reason, Najarian trimmed his calls in Western Digital. The stock has gone up $10 since June 13, when he previously discussed it on the "Halftime Report," but he said, "You can imagine the options moved a lot more."
For Virtus Investment Partners' Joe Terranova, the better play is trading the semis in general. He asked, "Do you go in and assume the risk in a Micron, on your belief that you get a favorable resolution on trade, or do you stick with just basically the overall SMH ETF? I think that's the better play. I don't think you want the risk assumption specifically in the Micron."
Even if a trade deal does emerge from the upcoming G-20 summit and the highly anticipated meeting between Trump and Xi, Kari Firestone of Aureus Asset Management warned, "If what we're saying is this group [the semis] moves because the market moves, there are many other places to go in the market without the risk of whether you really get the trade resolution that you need for the chips to really work."
Disclosure: Pete Najarian owns shares of Micron.